If environmentalists are generally not favorable to the use of cryptocurrencies, it is because those which use the method called proof of work consume a lot of energy. Among the cryptos using this method to validate transactions is Bitcoin.
And while some people have been able to make significant profits by speculating on the value of Bitcoin, when the trend was up, others have made it through another activity: mining. By solving mathematical problems to validate transactions, miners also earn Bitcoin.
The more the value of Bitcoin increases, the more attractive the activity. Thus, according to data shared by the Digiconomist site, in 2021, the amount of energy used for Bitcoin mining has skyrocketed.
The energy consumption of Bitcoin would indeed have gone from 77.8 TWh per year in January 2021 to 204.5 TWh per year in January 2022. Then, the value of the cryptocurrency collapsed.
While BTC had crossed the $60,000 mark in October 2021, today it is struggling to stay above $20,000. And as Digiconomist estimates show, Bitcoin’s energy consumption has recently crashed sharply.
Indeed, at the beginning of June, it would have fallen from 204.5 TWh per year to 131 TWh per year, ie a drop of more than a third. Good news for the climate? Not quite. Indeed, the energy consumption of BTC is still comparable to that of a country like Argentina. And according to our colleagues from the Guardian, a single transaction still consumes as much as an average American household for 50 days. Moreover, despite the crypto crash, this consumption has not yet fallen to the level of January 2021.
Consumption down, but still very high
Anyway, the logic is simple. The less value Bitcoin has, the less incentive there is for cryptocurrency miners.
Alex de Vries, the Dutch economist behind Digiconomist, explains that the crypto crash would put some miners out of business, especially those using non-optimized equipment, or those operating under sub-optimal conditions (e.g., at due to poor cooling).
“For bitcoin mining equipment, this is a big problem, because these machines cannot be reused to do other things. When they are not profitable, they are useless machines. You can keep them hoping the price will recover or sell them for scrap”also indicated the economist, quoted by The Guardian.
The energy-intensive side of Bitcoin is often pointed out. In May, the boss of the FTX platform, Sam Bankman-Fried, had provoked a lot of reactions by explaining that Bitcoin does not have the scalability necessary to become a real payment network.
“Things with which you perform millions of transactions per second must be extremely efficient, light and energy efficient”the CEO of FTX had also said, before adding that cryptos that work with the proof-of-stake method (much less energy-intensive) meet these criteria.
For him, Bitcoin would rather be a commodity or a store of value, like gold. For its part, Ethereum could take a different path. Indeed, the crypto should switch from the proof-of-work method to the proof-of-stake, which would allow the latter to drastically reduce its energy consumption.